Unrealistic targets for 2010-11

Federal Finance Minister Dr Abdul Hafeez Sheikh’s post-budget press conference on June 6 was laced with well-intentioned but ambitious objectives. For starters, he said that the budget had in place several measures to bring down inflation from 12 per cent for 2009-10 to the target of 9.5 per cent set for 2010-11. It also wants to bring down the budget deficit to four per cent of GDP, down from 5.6 per cent last year. This necessarily implies an element of a tight fiscal policy and while that may help contain inflation, it will not help much in achieving the aim of steady, and in fact slightly higher, economic growth. Further, the 4.1 per cent GDP growth recorded for 2009-10 was given an artificial boost thanks to an accounting revision which reduced the rate for 2008-09. Actual growth was perhaps a percentage point less so 2010-11’s target of 4.5 per cent seems quite unrealistic.

The minister said that current expenditures had been frozen but one finds this hard to comprehend given the significant increase in salaries proposed for government employees, a rise in government pensions and the 17 per cent rise in the defence budget. Perhaps the major disappointment has been the government’s inability to levy the value-added tax right away – it will now be imposed from October 1. The VAT would be a better way to document the country’s economy and to widen the tax net and perhaps that is one reason why powerful lobbies rose against its implementation. The minister recognised that under the Seventh NFC award, provinces had the right to collect VAT on services and hoped that this matter will be decided in time. Of course, agriculture income remains out of the tax net and that should not be the case given that widening the tax base is crucial to raising Pakistan’s currently abysmal tax-to-GDP ratio

Published in the Express Tribune, June 7^th, 2010.